Bank of America 2004 Annual Report Download - page 39

Supplemental Financial Data
Table 2 provides a reconciliation of the supplemental financial data
mentioned below with GAAP financial measures. Other companies
may define or calculate supplemental financial data differently.
Operating Basis Presentation
In managing our business, we may at times look at performance
excluding certain non-recurring items. For example, as an alternative
to Net Income, we view results on an operating basis, which repre-
sents Net Income excluding Merger and Restructuring Charges. The
operating basis of presentation is not defined by accounting princi-
ples generally accepted in the United States (GAAP). We believe that
the exclusion of Merger and Restructuring Charges, which represent
events outside our normal operations, provides a meaningful period-
to-period comparison and is more reflective of normalized operations.
Net Interest Income - FTE Basis
In addition, we view Net Interest Income and related ratios and analysis
(i.e. efficiency ratio, net interest yield and operating leverage) on a
FTE basis. Although this is a non-GAAP measure, we believe manag-
ing the business with Net Interest Income on a FTE basis provides a
more accurate picture of the interest margin for comparative pur-
poses. To derive the FTE basis, Net Interest Income is adjusted to
reflect tax-exempt interest income on an equivalent before tax basis
with a corresponding increase in Income Tax Expense. For purposes
of this calculation, we use the federal statutory tax rate of 35 percent.
This measure ensures comparability of Net Interest Income arising
from both taxable and tax-exempt sources.
Performance Measures
As mentioned above, certain performance measures including the
efficiency ratio, net interest yield, and operating leverage utilize Net
Interest Income (and thus Total Revenue) on a FTE basis. The effi-
ciency ratio measures the costs expended to generate a dollar of
revenue, and net interest yield evaluates how many basis points we
are earning over the cost of funds. Operating leverage measures the
total percentage revenue growth minus the total percentage expense
growth for the corresponding period. During our annual integrated
plan process, we set operating leverage and efficiency targets for the
Corporation and each line of business. Targets vary by year and by
business and are based on a variety of factors, including: maturity of
the business, investment appetite, competitive environment, market
factors, and other items (i.e. risk appetite). The aforementioned per-
formance measures and ratios, earnings per common share (EPS),
return on average assets, return on average common shareholders’
equity and dividend payout ratio, as well as those measures discussed
more fully below are presented in Table 2, Supplemental Financial
Data and Reconciliations to GAAP Financial Measures.
Return on Average Equity and Shareholder Value Added
We also evaluate our business based upon return on average equity
(ROE) and shareholder value added (SVA) measures. ROE and SVA,
both utilize non-GAAP allocation methodologies. ROE measures the
earnings contribution of a unit as a percentage of the Shareholders’
Equity allocated to that unit. SVA is defined as cash basis earnings
on an operating basis less a charge for the use of capital. For more
information, see Basis of Presentation beginning on page 40. Both
measures are used to evaluate the Corporation’s use of equity
(i.e. capital) at the individual unit level and are integral components
in the analytics for resource allocation. Using SVA as a performance
measure places specific focus on whether incremental investments
generate returns in excess of the costs of capital associated with
those investments. Investments and initiatives are analyzed using
SVA during the annual planning process for maximizing allocation of
corporate resources. In addition, profitability, relationship and
investment models all use SVA and ROE as key measures to support
our overall growth goal.
38 BANK OF AMERICA 2004